Bank of America's CEO testifies about the Merrill Lynch deal
But his stock prices shoots higher because analysts are starting to think the company may thrive again.
Bank of America's Ken Lewis was on Capitol Hill again, but today the House Committee on Oversight and Government Reform wanted to know whether the Federal Reserve and other government officials pressured Lewis to move forward with B of A's deal to buy Merrill Lynch.
The answer, Lewis said, was "yes." But, he said, without the government pressure, the bank still might have completed the deal.
"It’s hard for me to project what I ultimately would have done," Lewis said when asked if he would have walked away from the Merrill Lynch purchase. "But, yes, we were strongly considering it."
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"Treasury and Federal Reserve representatives asked us to delay any such action, and expressed significant concerns about the systemic consequences and risk to Bank of America of pursuing such a course," Lewis said in prepared testimony.
"Both the government and Bank America were aware that the global financial system was in fragile condition, and that a collapse of Merrill Lynch could hasten a crisis."
There were also e-mails from Fed officials that harshly criticized Bank of America and Lewis after the bank tried to back out of the deal upon learning of Merrill's huge fourth-quarter losses, according to published reports.
Bank of America had offered to buy Merrill for $50 billion in mid-September, at the height of the financial market meltdown.
The value of the deal sank to $19 billion as Bank of America's stock declined in subsequent weeks.
"Even six months later, it is easy to forget just how close to the brink our system came," Lewis said in his prepared remarks.
An e-mail from Federal Reserve Bank of Richmond President Jeffrey Lacker dated Dec. 21, less than two weeks before the deal was official, said Fed chairman Ben Bernanke "intends to make it even more clear that if they play that card and they need assistance, management is gone," referring to B of A's threats to walk away from the merger.
The House panel subpoenaed the Fed earlier this week for documents related to the deal.
As hearings go, its success or failure depended on your point of view. The Republicans were using the hearing to suggest Federal Reserve and the Treasury had gone barmy. The Democrats were using it to suggest that Lewis should have told his shareholders earlier about the problems of the Merrill Lynch deal.
And Lewis? Well, he looked like he just wanted to go back to his office in Charlotte.
For all the hoorah about Bank of America, the stock did perform splendidly today, finishing tops among Dow stocks and third among S&P 500 stocks.
The reason: Analysts are starting to like the stocks. Keefe, Bruyette & Woods, Raymond James and Morgan Stanley raised their ratings and price targets on the stock.
Morgan Stanley even predicted the company would earn $2 a share in 2010. Most analysts are at around $1 a share.
Keefe, Bruyette and Woods upgraded B of A stock to "outperform" and added a price target of $16.50 from $12.
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